Another Czar, More Lies-Elizabeth Warren

The unofficial czar of the new Consumer Financial Protection Bureau, Elizabeth Warren, told Congress last week that her organization is “the most constrained and the most accountable agency in government,” and then repeated similar claims on CNBC Tuesday. If nothing else, you have to admire her nerve.

Let’s start with that “most accountable” howler. The bureau is part of the Federal Reserve System, but the Dodd-Frank law that created it explicitly says that Fed Governors can’t “intervene” in the bureau’s functioning, “appoint, direct or remove any officer or employee” or “merge or consolidate the bureau . . . with any division or office of the Board of Governors or the Federal Reserve Banks.” So while the bureau is part of the Fed, it isn’t at all accountable to anyone at the Fed.

No matter, Ms. Warren told Congress, because the bureau is “the only agency whose rules can be overruled, obliterated, wiped out, negated by other agencies.” That’s called exaggerating a small truth to obscure a larger untruth.

It is true that the new Financial Stability Oversight Council can overrule the bureau’s rules if two-thirds of its 10-member board vote to do so. (The bureau director is one of the 10 voting board members.) But the legal and political bar is set very high: A bureau rule may only be overturned if it endangers the “safety and soundness of the United States banking system or the stability of the financial system of the United States.”

How often do you think an Administration’s financial bureaucrats will risk pulling that five-alarm-fire reason for killing a rule? The first time a consumer bureau director leaks to her media retinue that someone in government is trying to “protect the big banks,” her fellow regulators will run for cover.

How about funding? Ms. Warren told Congress that the bureau is “the only one of the banking regulators who actually does not have full control over its own budget,” adding “its budget is effectively set by the Fed”—and repeated these claims on CNBC Tuesday.

That’s another beauty. The reality is that the bureau’s director will set her own budget under the law, with the amount capped at 10% of “the combined earnings of the Federal Reserve System” in fiscal 2011. The Fed must transfer those funds without question to the bureau, which Ms. Warren’s written testimony estimates at “approximately $404 million.”

Our sources say this is a lowball figure because the Federal Reserve System includes the Federal Reserve Board and the Federal Reserve regional banks, which would imply a number closer to $539 million. The key point is that Ms. Warren’s budget is not set by Congressional appropriation and cannot be reduced by anyone—though a director can ask Congress to increase it by $200 million per year for five years.